Advanced Search
MyIDEAS: Login to save this paper or follow this series

On the Pricing of Performance Sensitive Debt

Contents:

Author Info

  • Mjøs, Aksel

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Myklebust, Tor Åge

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Persson, Svein-Arne

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Registered author(s):

    Abstract

    Performance sensitive debt (PSD) contracts link a loan's interest rate to a measure of the borrower's credit relevant performance, e.g., if the borrower becomes less credit worthy, the interest rate increases according to a predetermined schedule. We derive and empirically test a pricing model for PSD contracts and find that interest increasing contracts are priced reflecting a substantial risk of shocks to borrower credit quality. Borrowers using such contracts are of an overall higher credit quality compared to borrowers using interest decreasing contracts. These contracts are priced as if no risk of shocks to borrower credit quality is present.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2ffor%2fdp%2f2011%2f0511.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2011/5.

    as in new window
    Length: 69 pages
    Date of creation: 31 Mar 2011
    Date of revision: 07 May 2012
    Handle: RePEc:hhs:nhhfms:2011_005

    Contact details of provider:
    Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
    Phone: +47 55 95 92 93
    Fax: +47 55 95 96 50
    Email:
    Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
    More information through EDIRC

    Related research

    Keywords: Performance sensitive debt; cash flow ratios; credit ratings;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ernst-Ludwig VON THADDEN, 1998. "Asymmetric Information, Bank Lending and Implicit Contracts : The Winner's Curse," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9809, Université de Lausanne, Faculté des HEC, DEEP.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hhs:nhhfms:2011_005. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stein Fossen).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.